{"id":9796,"date":"2019-12-17T10:00:49","date_gmt":"2019-12-17T16:00:49","guid":{"rendered":"http:\/\/blog.uwsp.edu\/cps\/?p=9796"},"modified":"2019-12-20T10:22:59","modified_gmt":"2019-12-20T16:22:59","slug":"the-economy-5-things-you-should-know-for-2020-and-beyond-part-2","status":"publish","type":"post","link":"https:\/\/blog.uwsp.edu\/cps\/2019\/12\/17\/the-economy-5-things-you-should-know-for-2020-and-beyond-part-2\/","title":{"rendered":"The Economy: 5 Things You Should Know for 2020 (and Beyond) \u2013 Part 2"},"content":{"rendered":"\n<p><strong>Number 2: What\u2019s Been Driving Economic Growth<\/strong><\/p>\n\n\n\n<p>A country\u2019s economic growth is measured by the change in real gross domestic product (GDP). GDP measures the value of goods and services by a country over a given timeframe (typically quarterly or annually). GDP includes four components: 1) Consumer spending, 2) Investment spending, 3) Government Expenditures, and 4) Net Exports (exports minus imports). Investment spending includes the purchase of equipment by firms, the purchase of all newly produced structures (residential and non-residential), changes in business inventories, and investments in intellectual property. The change in real GDP growth means that the effects of inflation (price changes) have been backed out. Changes in real GDP measure the effects of what was produced, rather than any changes in prices.<\/p>\n\n\n\n<p>Consumer spending is the primary contributor to GDP, currently\ncomprising about 68% of GDP. Investment spending and government expenditures\neach comprise approximately 17.5% of GDP. Net exports comprise -3% of GDP; the\nnumber is negative because imports exceed exports. <\/p>\n\n\n\n<p>What\u2019s been driving the economic recovery since 2009? By far and away\nit has been consumer spending. The graph below shows changes in real personal\nconsumption expenditures from the previous quarter over the past 10 years. Ever\nsince the first quarter of 2010, real personal consumption expenditures have\nincreased every quarter, reflecting an expanding economy and falling\nunemployment rate. Over the past few years growth in real personal consumption\nspending has been relatively volatile, but always positive. In 2019, growth was\nonly 1.1% in the first quarter, increased to 4.6% in the second quarter, and\nfell to 2.6% growth in the third quarter. What\u2019s been driving consumer\nspending? A variety of factors:<\/p>\n\n\n\n<ul><li>The snowball effect of continued decreasing\nunemployment since 2010 resulting in increasing income.<\/li><li>An environment of extremely low interest\nrates.<\/li><li>A generally increasing stock market since\n2010.<\/li><li>Tax cuts; including temporarily reduced social\nsecurity taxes in 2011 and 2012 and the corporate and individual tax cuts of\n2018.<\/li><li>Relatively low inflation.<\/li><\/ul>\n\n\n\n<p>As long as consumer spending remains strong, the economy will likely\nremain strong. <\/p>\n\n\n\n<p><strong>Change in Real Personal Consumption Expenditures<\/strong><br><em>Percentage Change from Previous Quarter (3<sup>rd<\/sup> Qtr. 2009 \u2013 3<sup>rd<\/sup>. Qtr. 2019)<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" loading=\"lazy\" width=\"974\" height=\"375\" src=\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsc.jpg\" alt=\"\" class=\"wp-image-9803\" srcset=\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsc.jpg 974w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsc-300x116.jpg 300w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsc-768x296.jpg 768w\" sizes=\"(max-width: 974px) 100vw, 974px\" \/><figcaption><em>Source: Graph from Federal Reserve Economic Database (FRED) based on data from the U.S. Bureau of Economic Analysis<\/em><\/figcaption><\/figure>\n\n\n\n<p>After getting a temporary kick-up in growth in 2018, real gross private\ndomestic investment declined in the second and third quarters of 2019. As a\nresult, investment spending has certainly not been the driving force behind\nrecent economic growth. Despite the incentives created by the 2018 tax act,\nincluding the reduction of the corporate tax rate from 35% to 21% and allowing\nthe immediate deduction of capital expenditures, investment spending was only\nbolstered in the short-term, 2018.&nbsp; Growth\npeaked at 13.6% in the second quarter of 2018 before declining -6.3% and -1.5%\nin the second and third quarters of 2019, respectively. <\/p>\n\n\n\n<p><strong>Change in Real Gross Private Domestic Investment<\/strong><br><em>Percentage Change from Previous Quarter (3rd Qtr. 2009 \u2013 3rd Qtr. 2019)<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" loading=\"lazy\" width=\"974\" height=\"375\" src=\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsd.jpg\" alt=\"\" class=\"wp-image-9802\" srcset=\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsd.jpg 974w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsd-300x116.jpg 300w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsd-768x296.jpg 768w\" sizes=\"(max-width: 974px) 100vw, 974px\" \/><figcaption><em>Source: Graph from Federal Reserve Economic Database (FRED) based on data from the U.S. Bureau of Economic Analysis<\/em><\/figcaption><\/figure>\n\n\n\n<p>A quick word on manufacturing. One goal of the recent tax bill was to\nincrease manufacturing jobs in the United States. As of late 2019, the impact\nhas been minimal. The graph below shows a long history of manufacturing\nemployment in the United States. After a precipitous decline in employment in\nthe decade following the turn of the century, manufacturing employment steadily\ngrew (along with overall U.S. employment) since 2010, following the financial\nand economic crisis. However, in 2019 manufacturing employment has remained\nrelatively flat since January. There was actually a slight decline in October\nemployment relative to January.<\/p>\n\n\n\n<p><strong>United States Manufacturing Employment<\/strong><br><em>(January 1939 \u2013 October 2019)<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" loading=\"lazy\" width=\"974\" height=\"375\" src=\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingse.jpg\" alt=\"\" class=\"wp-image-9797\" srcset=\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingse.jpg 974w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingse-300x116.jpg 300w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingse-768x296.jpg 768w\" sizes=\"(max-width: 974px) 100vw, 974px\" \/><figcaption><em>Source: Graph from Federal Reserve Economic Database (FRED) based on data from the U.S. Bureau of Economic Analysis<\/em><\/figcaption><\/figure>\n\n\n\n<p>Although its impact on economic growth is not as\ngreat as the increase in consumer spending, real government spending has increased\nsince 2015, although the rate of growth has varied. In the second and third\nquarters of 2019, growth was 2.3%. The return to increased growth in government\nspending in 2015 followed decreases in government spending that occurred after\n2010. Increases in government spending may help short-term economic growth, but\nthey may also add to the budget deficit.<\/p>\n\n\n\n<p><strong>Change in Real Government Spending<\/strong><br><em>Percentage Change from Previous Quarter (3rd Qtr. 2009 \u2013 3rd Qtr. 2019)<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" loading=\"lazy\" width=\"974\" height=\"375\" src=\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsf.jpg\" alt=\"\" class=\"wp-image-9801\" srcset=\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsf.jpg 974w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsf-300x116.jpg 300w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/12\/201912cbei-5thingsf-768x296.jpg 768w\" sizes=\"(max-width: 974px) 100vw, 974px\" \/><figcaption>Source: Graph from Federal Reserve Economic Database (FRED) based on data from the U.S. Bureau of Economic Analysis<\/figcaption><\/figure>\n\n\n\n<p>For\nfurther information from the St. Louis Federal Reserve database:<\/p>\n\n\n\n<ol><li><a rel=\"noreferrer noopener\" aria-label=\"Real Consumer Spending (opens in a new tab)\" href=\"https:\/\/fred.stlouisfed.org\/series\/DPCERL1Q225SBEA\" target=\"_blank\">Real Consumer Spending<\/a><\/li><li><a href=\"https:\/\/fred.stlouisfed.org\/series\/A006RL1A225NBEA\">Investment Spending<\/a><\/li><li><a href=\"https:\/\/fred.stlouisfed.org\/series\/A822RL1A225NBEA\">Government Spending<\/a><\/li><li><a href=\"https:\/\/fred.stlouisfed.org\/series\/MANEMP\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Manufacturing Employment (opens in a new tab)\">Manufacturing Employment<\/a><\/li><\/ol>\n\n\n\n<p><em><strong>CBEI Blog Series: <\/strong><\/em><strong><em>The Economy: 5 Things You Should Know for 2020 (and Beyond)<\/em><\/strong><br><a href=\"https:\/\/blog.uwsp.edu\/cps\/2019\/12\/16\/the-economy-5-things-you-should-know-for-2020-and-beyond-part-1\/\">Part 1: Economic Growth and Unemployment \u2013 Positive Trends for a Long Time<\/a><br><a href=\"https:\/\/blog.uwsp.edu\/cps\/2019\/12\/17\/the-economy-5-things-you-should-know-for-2020-and-beyond-part-2\/\">Part 2: What\u2019s Been Driving Economic Growth<\/a><br><a href=\"http:\/\/blog.uwsp.edu\/cps\/2019\/12\/18\/the-economy-5-things-you-should-know-for-2020-and-beyond-part-3\/\">Part 3: The Timing of Those Tax Cuts<\/a><br><a href=\"https:\/\/blog.uwsp.edu\/cps\/2019\/12\/19\/the-economy-5-things-you-should-know-for-2020-and-beyond-part-4\/\">Part 4: The Yet to be Paid Increasing Costs of the Federal Deficit and Debt<\/a><br><a href=\"https:\/\/blog.uwsp.edu\/cps\/2019\/12\/20\/the-economy-5-things-you-should-know-for-2020-and-beyond-part-5\/\">Part 5: Drivers of The Stock Market <\/a><br>Part 6: Summary and Future Challenges<\/p>\n\n\n\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile has-background\" style=\"background-color:#a5a4a4;grid-template-columns:32% auto\"><figure class=\"wp-block-media-text__media\"><img decoding=\"async\" loading=\"lazy\" width=\"683\" height=\"1024\" src=\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin-683x1024.jpg\" alt=\"Kevin Bahr\" class=\"wp-image-12217 size-full\" srcset=\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin-683x1024.jpg 683w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin-200x300.jpg 200w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin-768x1152.jpg 768w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin-1024x1536.jpg 1024w, https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin.jpg 1200w\" sizes=\"(max-width: 683px) 100vw, 683px\" \/><\/figure><div class=\"wp-block-media-text__content\">\n<p class=\"has-black-color has-text-color\">Kevin Bahr is a professor emeritus of finance and chief analyst of the <a href=\"https:\/\/www.uwsp.edu\/business\/sentry-school-of-business-and-economics\/centers-and-outreach\/center-for-business-and-economic-insight\/\">Center for Business and Economic Insight<\/a> in the Sentry School of Business and Economics at the University of Wisconsin-Stevens Point. <\/p>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Number 2: What\u2019s Been Driving Economic Growth A country\u2019s economic growth is measured by the change in real gross domestic product (GDP). GDP measures the value of goods and services by a country over a given timeframe (typically quarterly or annually). GDP includes four components: 1) Consumer spending, 2) Investment spending, 3) Government Expenditures, and [&hellip;]<\/p>\n","protected":false},"author":136,"featured_media":9757,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[527],"tags":[124,343,344],"_links":{"self":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts\/9796"}],"collection":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/users\/136"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/comments?post=9796"}],"version-history":[{"count":7,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts\/9796\/revisions"}],"predecessor-version":[{"id":9832,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/posts\/9796\/revisions\/9832"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/media\/9757"}],"wp:attachment":[{"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/media?parent=9796"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/categories?post=9796"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.uwsp.edu\/cps\/wp-json\/wp\/v2\/tags?post=9796"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}